FINC306 definitions and theory Exam
2026 Questions and Answers
Derivative definition (what's the alternative definition)? - Correct answer-- A
financial instrument that has a value determined by the value of something else
(the underlying)
- A contract/agreement between two parties
- "Financial weapons of mass destruction"
What are some common underlyings for derivatives? (what is not)? What are some
less common ones? - Correct answer-- Stocks, bonds, currencies, interest rates, and
market indices
- Not Onions or movie outcomes
- Weather, election outcomes
What's the loose history of derivatives? - Correct answer-- Mesopotamia: Future
exchanges of silver and seeds as well as the code of Hammurabi
- Ancient Greece: Derivatives on olive harvest
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,- Modern: Derivatives on Japan and Amsterdam equity markets
- First formal: CBOT on corn
- CBOE: Black and Scholes
What's the ratio of notional value of derivatives vs global GDP - Correct answer-6-
7x bigger
What are the most common types of derivatives? - Correct answer-Future,
Forward, Option, Swap
What are the most common uses for derivatives? - Correct answer-Hedging,
speculation, reduced transaction costs, arbitrage
How was Jane Street able to mainpulate the market? - Correct answer-- The
underlying wasn't as liquid as the index or the index options
How did the ASX get around not being able to sell futures? - Correct answer-They
introduced LEPOs
- One can short a future or if they aren't available, a LEPO.
What are the two main derivative markets? - Correct answer-- OTC and exchanges
(future, options, all)
Market value formula - Correct answer-# Units of Claims * Price of Claims
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, Notional Value formula - Correct answer-#Units of Claim* Units of underlying*
Price of underlying
What is trading volume? What is open interest? - Correct answer-- Trading volume
counts as number of financial claims exchanged hands (# units of claims)
- Open interest measures the total number of contracts for which counterparties
have an open claim (# units of claims)
What were the first NZ derivatives? - Correct answer-Wool contracts in London
Whats the most OTC traded derivative? - Correct answer-Swaps
Where are the most exchange-traded futures and options traded? - Correct answer-
North America
How are derivatives traded in NZ? What is the most traded derivative in NZ? -
Correct answer-NZFOE and NZX, futures (both in transactions and value)
What is the definition of a forward contract? What does it specify? - Correct
answer-A forward contract is a binding agreement to buy/sell an underlying asset
in the future, at a price set today
A forward contract specifies
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
2026 Questions and Answers
Derivative definition (what's the alternative definition)? - Correct answer-- A
financial instrument that has a value determined by the value of something else
(the underlying)
- A contract/agreement between two parties
- "Financial weapons of mass destruction"
What are some common underlyings for derivatives? (what is not)? What are some
less common ones? - Correct answer-- Stocks, bonds, currencies, interest rates, and
market indices
- Not Onions or movie outcomes
- Weather, election outcomes
What's the loose history of derivatives? - Correct answer-- Mesopotamia: Future
exchanges of silver and seeds as well as the code of Hammurabi
- Ancient Greece: Derivatives on olive harvest
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,- Modern: Derivatives on Japan and Amsterdam equity markets
- First formal: CBOT on corn
- CBOE: Black and Scholes
What's the ratio of notional value of derivatives vs global GDP - Correct answer-6-
7x bigger
What are the most common types of derivatives? - Correct answer-Future,
Forward, Option, Swap
What are the most common uses for derivatives? - Correct answer-Hedging,
speculation, reduced transaction costs, arbitrage
How was Jane Street able to mainpulate the market? - Correct answer-- The
underlying wasn't as liquid as the index or the index options
How did the ASX get around not being able to sell futures? - Correct answer-They
introduced LEPOs
- One can short a future or if they aren't available, a LEPO.
What are the two main derivative markets? - Correct answer-- OTC and exchanges
(future, options, all)
Market value formula - Correct answer-# Units of Claims * Price of Claims
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, Notional Value formula - Correct answer-#Units of Claim* Units of underlying*
Price of underlying
What is trading volume? What is open interest? - Correct answer-- Trading volume
counts as number of financial claims exchanged hands (# units of claims)
- Open interest measures the total number of contracts for which counterparties
have an open claim (# units of claims)
What were the first NZ derivatives? - Correct answer-Wool contracts in London
Whats the most OTC traded derivative? - Correct answer-Swaps
Where are the most exchange-traded futures and options traded? - Correct answer-
North America
How are derivatives traded in NZ? What is the most traded derivative in NZ? -
Correct answer-NZFOE and NZX, futures (both in transactions and value)
What is the definition of a forward contract? What does it specify? - Correct
answer-A forward contract is a binding agreement to buy/sell an underlying asset
in the future, at a price set today
A forward contract specifies
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
